Post on 15-Jan-2023
INTERNSHIP REPORT ON
SME Financing of Bangladesh Development Bank Ltd
Prepared For Dr. Salehuddin Ahmed Professor BRAC Business School BRAC University
Prepared By Iffat Zarin Khan ID NO: 15364042
MBA, BRAC University
Date of Submission: 5th April 2018
INTERNSHIP REPORT ON
SME Financing of Bangladesh Development Bank Ltd
Prepared For Dr. Salehuddin Ahmed Professor BRAC Business School BRAC University
Prepared By Iffat Zarin Khan ID NO: 15364042
MBA, BRAC University
Date of Submission: 5th April 2018
ACKNOWLEDGEMENT
During the Internship Program held at BDBL from 7 February 2018 to April 4 2018, I have been fortunate to get the support, assistance and encouragement from a number of individuals including my respectable teacher Dr. Salehuddin Ahmed and a good number of officials of BDBL..
In the first instance, I would like to express my grateful appreciation to Almighty Allah for enabling me to complete this report successfully.
I would like to thank our honorable academic supervisor Dr. Salehuddin Ahmed, BRAC Business School, BRAC University. I am thankful to him for his continuous support and supervision, suggestions and providing me with valuable information that were very much needed for the completion of this presentation. I am very much lucky for getting the opportunity to prepare this report under his supervision and guidance.
This is my special privilege to express my thanks and gratitude to the Authority Bangladesh Development bank ltd. (BDBL) for kindly granting me Internship which is necessary for completion of my MBA Course. I would like to pay my respect and thanks to Mohammad Nuruddin, Asst. General Manger, Training Institute of BDBL at Kawran Bazar, Dhaka for giving me proper directions during the course of my Internship in BDBL.
I also articulate my heartiest appreciation to Mr. Solaiman Ali, Deputy General Manager and Rubina Yeasmin Khan, Senior Principal Officer of SME department of Bangladesh Development Bank Ltd.(BDBL) to direct and guide me under working schedule and enabling me doing my job in a favorable environment in my internship program period.
Likewise I am also thankful to ASST. General Manager, Elephant Road Branch, BDBL for their kind and sincere cooperation extended to me in this regard.
I also admire all the personnel of Bangladesh Development Bank Ltd (BDBL), for their cooperation and cordial assistance to me. I am grateful to all their employees for providing me with valuable information for my report. Though I was unknown to them, they have helped me by fulfilling my Internship Program. Their useful information allowed completing my report successfully. Besides, I am also grateful to the authors, researchers, and article writers who’s Books, Reports, Thesis papers and Journals that have helped me to prepare my this Report.
Letter of Transmittal
April 5, 2018 Dr. Salehuddin Ahmed Professor, BRAC Business School BRAC University 66, Mohakhali C/A Dhaka‐1212
Subject: Submission of Internship Report.
Dear Sir,
It is a privilege to submit the report on “SME Financing of Bangladesh Development Bank Limited”. I am submitting this report as part of my internship in BDBL. The report is prepared according to the instructions and methods set by you. I would like to take this opportunity to thank you for the guidance and support you have provided me during the course of this report.
Working in Bangladesh Development Bank Limited, was an inspiring experience for me. I feel the immense knowledge and experience will facilitate me a lot in my future career life. With my limited knowledge, I have tried my best to prepare the report worthwhile. The practical knowledge and experience gathered during my report preparation will immeasurably help in my future professional life. I would like thank you, for giving me the opportunity to do a report on the above mentioned topic. Your acceptance of the report will make all the endeavors fruitful.
Sincerely yours
…………………………………
Iffat Zarin Khan
ID NO: 15364042
MBA, BRAC University
LETTER OF ACCEPTANCE
I hereby certify that the concerned Internship Report on “SME Financing of Bangladesh Development Bank Ltd” using relevant documents and data related to assigned topic prepared by Iffat Zarin Khan, Id No: 15364042, a regular student of MBA, BRAC Business School, BRAC University has been acknowledged as it is acceptable.
…………………………………..
Dr. Salehuddin Ahmed Professor, BRAC Business School BRAC University
EXECUTIVE SUMMARY
Bangladesh Development Bank Ltd (BDBL) is the prime concern of development financing
institution of country that extends financial assistance both in local and foreign currencies for
setting up new industries to boost up the industrial policy and financial reforms program of
government towards market economy. In this report my prime focus would be SME
department of Bangladesh Development Bank Ltd (BDBL).I will try to find out the overall
activities of SME department of BDBL.
For enhancing domestic investment to meet rising demand for employment generation,
women’s empowerment and regional development, the role of SME is indispensable. In line
with the Government’s and Bangladesh Bank’s Policy Guidelines, promoting a dynamic
SME sector is a priority for the bank. For enhancing the knowledge and awareness of the
officers on SME financing, a number of training programs were arranged by the bank in the
year of 2011 on SME related issue. Besides that the bank actively participated in different
SME fairs and seminars.
The objectives of the proposed study are to find out all relevant information about SME banking. As I
am doing my internship at BDBL, I thoroughly analyze their SME banking practices and find out all
needed information. In this report I find out BDBL’s SME products, borrower’s eligibility to get the
loan, its loan recovery success and provided some necessary recommendations for improving the
SME products of BDBL.
Bangladesh Development Bank Ltd (BDBL) has four types of SME products. The
introduction of four new SME products namely “Ashar Alo” (for women entrepreneur),
“Koler Chaka Takar Jhaka” (Industries loan), “Khamar Bari” (loans for the processing of
agricultural products), and “Proshar” (Business Loan) makes the bank different from others.
Ashar Alo is a SME loan, which is provided to the women entrepreneur. It helps to include
women power in the economic development of the country and encourages women
entrepreneur to do business in order to alleviate poverty from the grass-root level. Koler
Chaka Takar Jhaka (industry/ service loan) is another type of SME loan. That loan is
provided to encourage the middle class in operating business and make positive contribution
i
in the economic development of the country, to make direct contribution in reducing poverty
from the country and to earn foreign currency by producing export quality products.
Khamar Bari (Agri- Product Processing Loan) is a type of agricultural loan. It makes
contribution in the development of the country’s agricultural sectors, which is the main
driving force of the country’s economic development and to make direct contribution in
reducing poverty from the country by solving unemployment problem
The final SME product is Prosar (Business Loan). That loan is provided to create an
opportunity for the business men who are interested in medium and small enterprise and to
make direct contribution in reducing poverty from the country by solving unemployment
problem and finally improve the standard of living of the people of our country.
The population sampled for the study was limited to the Bangladesh Development Bank Ltd
where I was assigned to perform the study. In order to conduct the report, I have collected
necessary information from two sources such a primary sources of information and secondary
sources of information. Primary sources of information include face to face conversation with
the respective officers, staff and customers of BDBL, oral interview of the responsible
officers, observation of department of BDBL. Secondary sources of information include
annual report of the BDBL in 2013 –2014, annual Budget of the BDBL, various document of
the BDBL, relevant document's studies as provided by the officers concerned and extensive
literature search on the basis of these documents of publication.
Table of Contents
Executive Summary I
Chapter -1 (Introduction)
1.01 Introduction 1-3
1.02 Origin of the Report 4
1.03 Rationale of the Study 4-5
1.04 Scope of the study 6
1.05 Objectives of the Study Report 6-7
1.06 Methodology of the Study 8
1.07 Literature Review 9-10
1.08 Limitations of the Study 11-12
Chapter -2 (My Job Part)
2.01 Job Responsibility 14
2.02 Daily Work 14
2.03 My Roles at Bank 14-15
2.04 Work Experience 15
2.05 My Observation about the SME Department 16
Chapter -3 (Overview of the Organization)
3.01 History of BDBL 18-19
3.02 Vision 19
3.03 Mission 19-20
3.04 Functions of BDBL 20-21
3.05 Corporate Profile 22
3.06 Organizational Structure 23
3.07 Products/Service of BDBL 24-26
3.08 Other Activities of BDBL 26-28
3.09 SWOT Analysis of BDBL 28-30
Chapter -4 (SME and Bangladesh)
4.0 1 SME Banking in Bangladesh 32-33
4.01.1 Definition of SME 34
4.02 Importance of SME Loan in Bangladesh 35-37
4.03 Bangladesh Bank and SME 37-38
4.04 Measures taken by Bangladesh Bank for SME Development 38
4.05 Units of SME Banking Division 39-40
4.06 Current Status of SME Financing by Banks in Bangladesh 40-41
4.07 Loan documents needed for SME financing by banks 41-42
4.08 Potential SME Sectors 43
Chapter 5 – (SME and BDBL)
5.1 SME Department OF BDBL 45
5.2 Function of SME Department OF BDBL: 46
5.3SME products of BDBL: 46-50
5.4 Targets for SME Credit 51
5.5 SME Loan Operation Policy of BDBL 51-54
5.6 Loan Recovery in SME Sectors: 54-56
CHAPTER 6: Research & Analysis
6.1 Questions Raised & Addressed 58-60
CHAPTER 7: Findings of the Study
7.1 Findings & Analysis 62
7.2 Causes of Problem Loans in BDBL 63
CHAPTER 8: Recommendations & Conclusion
8.1 Recommendations 65
8.2 Conclusion 66
References: 67
2
1.1 Introduction:
Banking Industry is one of the promising industries of our country. Generally by
the word “Bank” we can easily understand that, the financial institution that deals
with money. There are different types of banks that provide service to customers
like: Central Bank, Agricultural Bank, State Owned Commercial Bank, Private
Commercial Bank, Industrial Bank, Foreign Commercial Bank, Saving Bank and
Exchange Bank etc. But when we use the term Bank it generally means the
“Commercial Bank”, the primary contributors to the economy of a country. It helps
to flow funds from surplus unit to deficit unit and through this it facilitated the
efficient allocation of the resources as well as accelerated economic growth. The
ne thing is that how it operates and presenting its activities for the purpose of
serving customer requirements to increase their well being in the sense of wealth.
Bank also provides many services for clients to make their life easy in this busy
life. In this competitive environment in the world of today, the entire bank
increases their facilities in favor of their customers to retain them and capture more
shares of the market to be the leader. Therefore, it can be said that the rate of
interest is one of the main factors in attracting customers.
Bangladesh Development Bank Ltd (BDBL), a state owned commercial Bank,
which was shaped up by a merger between Bangladesh Shilpa bank (BSB) and
another is Bangladesh Shilpa Rin Sanghstha (BSRS) has started its operations
across the country from January 3, 2010. As a development bank, BDBL primarily
remains committed to provide industrial financing. It is also to embark on
3
commercial on commercial banking activities including foreign exchanging and
international trade financing.
The bank will continue to strengthen its growth and brand image by expanding
new business activities, particularly in the area of trade financing , import and
export business, foreign remittance, retail banking, SME and agro-based industries
mainly. For major manufacturing, infrastructural and utility project, the bank will
prefer syndicate financing.
For enhancing domestic investment to meet rising demand for employment
generation, women’s empowerment and regional development, the role of SME is
indispensable. In line with the Government’s and Bangladesh Bank’s Policy
Guidelines, promoting a dynamic SME sector is a priority for the bank.
Bangladesh Development Bank Ltd (BDBL) has four types of SME products
namely “Ashar Alo” (for women entrepreneur), “Koler Chaka Takar Jhaka”
(Industries loan), “Khamar Bari” (loans for the processing of agricultural
products), and “Proshar” (Business Loan).
SME can be termed as ‘employment generating machine’, because it helps to solve
unemployment problem and to get a higher economic growth, narrowing the gap of
income inequality and poverty alleviation. Extension of credit facility is an
indispensable condition to boost up SME sectors in Bangladesh. So BDBL should
increase its credit/loan limit and take appropriate marketing plan to make that
segment more popular. The present government has also put much emphasis on the
development of SME sector considering it as ‘the driving force for
industrialization..
4
1.2 Origin of the Report:
Term paper program is a pre-requisite for acquiring MBA degree. Before
completion of the degree, a student must undergo the Internship program. This
report is prepared based on practical knowledge acquired from the internship
program and as well as for the fulfillment of degree requirement of MBA. As the
classroom discussion alone cannot make a student perfect in handling the real
business situation, therefore, it is an opportunity for the students to know about the
real life situation through this program. The program consists of three phases:
The orientation of the Intern with the organization, its function and
performance.
The project work pertaining to a particular problem(s) matching with the
Intern’s area of specialization and organizational requirement.
The report writing to summarize the Intern’s analysis, findings and
achievements in the proceeding of the followings.
As practical orientation is integral part of MBA, I was sent to the Bangladesh
Development Bank Ltd, Head Office, Motijheel, Dhaka to have real life
exposure on a term paper (from February 7 2018 to April 4 2018). This internship
report titled “SME Financing of Bangladesh Development Bank Ltd” will be
able to meet the requirement of the internship program successfully.
1.3 Rationale of the Study:
Industrialization is the main indicator of a develop country, so government has
established Bangladesh Development Bank Ltd. to disperse the loan and other
5
technical facilities among the entrepreneur to develop industry. Since Bangladesh
is a developing country and the present economic situation of Bangladesh is open
market in nature so in this situation the specialized bank like BDBL can play a
vital role toward the economic improvement. BDBL provide large scale loan, short
& medium scale loan and working capital to different industry in Bangladesh.
These types of loans play a very important role in our industrial development. So at
once I determined to demonstrate the loan operation activity of BDBL. It is my
sincere interests in ‘SME development and SME finance’ which inspired me to
pursue my studies in the MBA program and I am indeed privileged to be eligible to
enroll at BRAC University Business School. The evolution SMEs in Bangladesh
has been truly remarkable particularly at a time while the entrepreneurs are faced
with undeniable challenges, yet possessing an attitude of optimism. And, I wanted
to be a part of that growth pattern. Considering the fact that I am genuinely
interested in the development of SME’s (even thinking of this as a career option) to
enhance national economic growth including employment generation, I find it
particularly fitting to focus on the above research topic to gain new knowledge and
to identify the challenges and prospects for SMEs with a reference to Bangladesh
Development Bank services. As I have been specializing in ‘finance’ as part of my
MBA program, I am most interested in areas of studies focusing on SME finance
and their overall growth, in particular overcoming of the financial access
constraints That’s why I select this topic ‘SME Financing of Bangladesh
Development Bank Ltd.’
6
1.4 Scope of the Study:
The report has been prepared in order to provide a brief idea about the SME financing of Bangladesh Development Bank Ltd. Analyzing the SME scenario of Bangladesh and to assess the performance of Bangladesh Development Bank Ltd (BDBL) in context of this highly competitive market. Along with that the report will justify how SME is contributing in socio-economic development of the country. The report will identify challenges faced by SMEs and recommendations on how to overcome them.
1.5 Objectives of the Study:
The report has been prepared in order to provide a brief idea about the SME financing Scenario of Bangladesh from the perspective of Bangladesh Development Bank Ltd. The broad and specific objectives of the report are given below:
Broad Objectives:
The Broad Objective of this study is to analyze the SME financing of BDBL. Along with that the report will justify, how SME contribute in socio economic development of a country.
To find out the problems, if any, that Bangladesh Development Bank Ltd. As well as clients in SME financing for Small and Medium Entrepreneurs and to suggest remedies for the problems encountered.
Specific Objectives
To have exposure to the overall banking operation and other function of
Bangladesh Development Bank Ltd.
To have a clear understanding of the business operation of Bangladesh
Development Bank Ltd.
To learn about SME banking practices of BDBL.
7
To learn the characteristics of SME products of BDBL such as “Ashar
Alo” (for women entrepreneur), “Khamar Bari” (loans for the
processing of agricultural products), “Koler Chaka Takar Jhaka”
(Industries loan) and “Proshar” (Business Loan) the eligibility for
getting this loan.
To get an idea about the characteristics and the eligibility of borrower
for getting this loan.
To analyze the financial statements and different parts of annual report of
the bank.
To understand the policies and procedures the bank follows in the
competitive market.
To know the details of the major departments of the bank.
To know about the different products and services the bank offers to its
customers.
To observes the working environment of Bangladesh Development Bank
Ltd.
To understand the process of sanctioning the loan.
To understand the process of loan recovery.
To understand the process of small & medium enterprise loan and
advance.
To identify the current status of disbursement policy.
To determine the trend of loans and advances.
To identify the trend of recovery.
To recommend ways and means to solve the problems related to my
observed arena.
8
1.6 Methodology of the Study:
Correct and smooth completion of research work requires adherence to some
rules and methodologies. In order to conduct the report, the decision had been
taken to collect various types of primary data and secondary data. Data have been
collected oral interviewing the responsible officers. In order to make the report
more meaningful and presentable, two sources of data and information have been
used widely.
Primary sources of information
Face to face conversation with the respective officer of different
departments.
Relevant file study as provided by the officer of the concerned organization.
Practical work exposures from different division of the bank.
Secondary sources of information
Annual report of Bangladesh Development Bank Ltd -2010
Different papers of Bangladesh Development Bank Ltd
Office files
Various books, articles, manuals etc.
Information about the organization from their company profile.
Web Sites of Bangladesh Bank, SME foundation.
Different text books.
Unpublished data of Bangladesh Development Bank Ltd.
9
1.7 Literature Review:
Small and medium enterprises (SMEs) operate in the same environment as their
larger counterparts, but without the associated benefits such as adequate capital
and extended human resources of the larger organizations. SMEs encounter
increasing competitive pressure fuelled by globalization, legislation and the
relaxing of trade barriers, as well as an increase in market expansion due to
emerging technologies and innovation. Small and medium enterprises often
flourish on their adaptability and agility such as their close proximity to their
customers, their openness towards new ways of working, and their risk taking
approach, but many micro, small and medium enterprise are susceptible to major
external shocks (Berry, 2002; Laforet and Tann, 2006).
Figure 1: Graphical Representation of How SME Credit Contributes to Build the Economy
of Bangladesh
SME Credit
Employment Generation
Poverty Alleviation
Industrialization
Improved Standard of
Living
Higher Economic Growth
10
The Daily Star in its editorial (2006) mentioned that many SME owners are to
face difficulties when they require bank loans. In fact, SME financing has recently
been identified by experts as one of the major problems faced by SMEs in
Bangladesh.
Mahmud (2006) said that the SMEs have very limited bank finance, which is only
around 10 percent, while self-finance remains the major source of their finance
contributing 76.5 percent of fixed capital and 51.8 percent of working capital.
A World Bank survey (2002) on Bangladesh’s SMEs identified lack of finance as
the major issue, with 55% SMEs reporting it. Bribes (21%), orders/marketing of
product (28%), lack of knowledge (12%), and license for work (8%), along with
new technology (8%) were also considered as major issues. Without the much vital
capital, they have little chance of growth or even sustenance in this mobile world.
This study has tried to pinpoint, through empirical research, the major, problems
faced by SMEs and banks in Bangladesh in relation to financing and has provided
recommendations based on the findings to improve the situation.
Rosen (2003) mentioned that SMEs make up the largest portion of the employment
base in many developing countries and, indeed, are often the foundation of the
local private sector. The entrepreneurs behind them could and should play a much
larger role in development, but too often are held back by a lack of ready access to
financing from local formal sector financial institutions.
IFC (2004) Annual Review report mentioned that in almost every part of the world
limited access to finance is one of the biggest obstacles to private sector growth.
This is especially true for smaller firms that have minimum influence on policy
reform.
11
Bhattacharya and Chowdhury (2003) mentioned that Bangladesh Bank encourages
banks to give loans to projects for diversified industrial development. From the
point of view of limiting the credit risk exposures of the banks having a higher
level of classified loan, the new rule is justified. However, to consider large loans
as risky loans (by the new rule) is not reasonable. Moreover, for increasing the
volume of lending to the SME sector, this sort of supply-side policy is not
adequate. In fact, under both directed lending (before 1990) and deregulated
lending (after 1990) regimes, the demand-side factors were not considered;
consequently, resource allocation suffered.
Hossain (1998) found that the most critical constraint that small and medium scale
manufacturers mention is the lack of sufficient capital to operate the business. In
most of the cases, businesses started using own savings and borrowing from
friends and relatives, while banking source come after that. It is not so easy to rise
fixed and working capital from banks, since banks are not so willing to provide
loan of small size for high monitoring cost. On the other hand, potential small scale
entrepreneurs are also not so much interested due to procedural hazards and
requirement of long time, which may make the necessity of taking loan futile.
Thus, the way to get bank loans needs to be simplified for the small entrepreneurs.
1.8 Limitation of the Study:
Although the officials were very busy, they gave me wholehearted
cooperation in the time of practical orientation also in preparing this report.
But I have faced the following limitations during the orientation:
12
During working period the officials were very busy with their task. So, they
could provide me very little time.
Due to maintain banking confidentiality they avoid some of my questions.
So it was quite difficult for me to get in-depth knowledge about some of my
task.
Time constraint is another limitation.
Sufficient books, publications and figures were not available.
Lack of available up to date information.
The employee of BDBL had no eagerness to provide some internal data
which bank does not publish for strong reason.
Lack of previous practical experience of this concern as I am a newcomer.
Lack of in-depth knowledge and analytical ability for writing such report.
Only few days ‘internship experience is not enough to find out all the
limitations of such a vast project.
If these limitations were not been there, the report would have been more useful.
14
2.1 Job Responsibility:
Bangladesh Development Bank is a state owned commercial bank of Bangladesh where I got the opportunity to conduct my Internship program. Though I got the chance to work in real life scenario at banking sector for 39 days only, it has increased my level of experience and I have learnt so many things about the real banking sector. During my Internship, I got the chance of working in different departments of BDBL. I selected SME Department for the Internship Report.
2.2 Daily Work:
I worked in Bangladesh Development Bank limited with my Internship team. The team was concerned with 6 members. We worked with several departments by maintain a routine. I worked in the following departments of BDBL:
Human Resource Management Department International Banking Department SME Department Loan Recovery Department
I also worked in Bangladesh Securities Limited which is a subsidiary company of BDBL.
2.3 My Roles at Bank:
The roles that we played in BDBL are as follows:
• The time duration of my work was from 10:30am to 1:00pm five days a week
• During this time, I along with my teammates visited several departments and
had briefing from the respective department heads, Assistant General
Managers and senior officers
15
• We used to visit their offices and we had the opportunity to look at the
booklets, documents, reports and policies of those departments which are
very confidential.
• After doing this for one week, I was assigned in BDBL Principal branch
which is at the ground floor of BDBL Bhaban.
• In Principal branch, I had the opportunity to work in SBS, CBS Software in
computer and opened 3-4 KYC (Know your customer) profiles,
Savings/Current Accounts and filled up the forms which were incomplete
with the guidance of officers.
• My work was monitored by the AGM of Principal Branch, my supervisor,
Mr. Shafiqul Islam and I had to report to him at the end of my work.
• During my last couple of weeks, I had the chance to work in Loan operations
department, discussed the insights and future of BDBL in loan operation
sector and sometimes did other work as asked by my supervisor.
2.4 Work Experience:
So far I gathered much experience by working with many experienced personnel
and staffs of Bangladesh Development Bank Ltd. They created scope for me to
learn something new and at the same time helped me to do many new works which
I had not done before. However, the working environment of Bangladesh
Development Bank Ltd is very inspiring. All the employees helped me a lot to
learn each and every work I was assigned to.
16
2.5 My Observation about the SME Department:
Lack of Product Diversification
Lack of enough IT support for the SME department. So it needs more IT
support.
Lack of error free quality file is the result of careless attitude which
subsequently delay in sanctioning the loan. So the employee should be more
sincere in file processing.
Lack of skilled employee.
Small collection team compared to the number of overdue account.
Slow web mail hampers the flow of the work of manager. Considering the
time constraint and work load a better solution should be provided.
The office area of SME department is very small. So it is very messy with
huge number of files.
Customers are dissatisfied due to insufficient information.
The salary package for the entry and mid level management is considerably
low.
18
3.1 Bangladesh Development Bank Limited:
Bangladesh Development Bank Ltd (BDBL), a state owned commercial Bank,
which was shaped up by a merger between Bangladesh Shilpo bank (BSB) and
another is Bangladesh Shilpo Rin Sanghstha (BSRS) has started its operations
across the country from January 3, 2010.
For long, both the Bangladesh Shilpo bank (BSB) and another is Bangladesh
Shilpo Rin Sanghstha (BSRS) had been facing crises in their respective operations
as a huge amount of loans disbursed by them remained unrealized. Before the start
of the banking operations, a vendor agreement will be signed between the
government and the BDBL as a legal compliance,established as a public limited
co. took over the undertaking and the business of statutory bodies namely the
Bangladesh Shilpo bank (BSB) and Bangladesh Shilpo Rin Sanghstha (BSRS)
with all their assets, benefits, rights, power, authorities, privileges, liabilities,
personal, borrowers and other obligation to carry on with the same business.
Additionally, it got the mandate to engage in commercial banking. The authorized
capital of new bank is Tk 1,000 crore, while its paid-up capital is Tk 400 crore.
Bangladesh Shilpo bank (BSB)-
The formal Industrial Development Bank of Pakistan (IDBP) and the Equity
Participation Fund (EPF) both of were established for the industrial development
of Pakistan was converted into a single institution named Bangladesh Shilpo bank
(BSB). Bangladesh Shilpo bank comes into existence on October 31, 1972 by the
promulgation of Bangladesh Shilpo bank order 1972 (President’s order no. 129 of
1972).
19
Bangladesh Shilpo Rin Sanghstha (BSRS)-
Bangladesh Shilpo Rin Sanghstha (BSRS) established on 31 October, 1972 by the
President’s order no.128 of 1972 to provide credit facilities and other assistance to
industrial concerns and to encourage and broaden the base of investment in
Bangladesh. BSRS was vested with the undertakings of the Pakistan Industrial
Credit and Investment Corporation Limited (PICIC), Investment Corporation of
Pakistan, and National Investment Trust (NIT) located in Bangladesh. Later, on
16th March.1987, the investment advisory Center of Bangladesh (IACB) was
merged with BSRS. The present form of BSB and BSRS is BDBL. The form
comes through merge on December 2009. It starts its operation on BDBL on 3rd
January, 2010.
3.2 Vision:
To emerge as the country’s prime Financial Institution for supporting private sector
industrial and other projects of great significance to the country’s economic
development. Also be active participant in commercial banking by introducing new
lines of product and providing excellent services to the customers.
3.3 Mission:
To be competitive with other Banks and Financial Institutions in rendering
services ;
To contribute to the country’s socio-economic development by identifying
new and profitable areas for investment ;
20
To mobilize deposit for productive investment ;
To expand branch network in commercially and geographically important
places ;
To employ quality human resources and enhance their capability through
motivation and right –type of training at home and abroad ;
To delegate maximum authority ensuring proper accountability ;
To maintain continuous improvement and up-gradation in business policies
and procedures ;
To adopt and adapt to new technology ;
To maximize profit by strong, efficient and prudent financial performance ;
and
To introduce new product lines according to market needs.
3.4 Functions of Bangladesh Development Bank
Bangladesh Development Bank Limited (BDBL) extends term loan facilities in
local and foreign currencies to industrial projects (both new and BMRE) IN THE
PRIVATE AND Public Sectors. Besides, the bank also performs the following
activities:
It extends term loans by giving special priority to the SME enterprises for
achieving self reliance as well as increasing productions and empowerment
of women.
Proving working capital loan to industrial projects.
21
Provides Equity support in the form of underwriting and bridge loan to
public limited companies.
Issues guarantees on behalf of borrowers for repayment of loan
Extends commercial banking services along with deposit mobilization
Purchases and sales shares or securities of enlisted companies for BDBL and
on behalf of its customers as member of Dhaka Stock Exchange Ltd. And
Chittagong Sock Exchange Ltd. (CSE) for capital Market Development.
Conduct Projects promotional activities along with preparation of various
subject oral study reports.
22
3.5 Corporate Information:
Name Bangladesh Development Bank Ltd
Extent of Shareholding 100% Govt. Share
Legal Status Public Limited Company.
License obtained Bank.
Formal Inauguration November 16, 2009
Registered Office BDBL Bhaban, 8, Rajuk Avenue, Dhaka
Authorized Capital TK. 10000 million
Paid Up Capital TK. 4000 million
Reserve (on 01.01.2014) TK 2500 million
Total Assets (on 01.01.2014) TK 1980 million
Total Human Recourse 1200
No. of Zonal Office 4
No. of Branch Office 32
Membership DSE, CSE
Web Site www.bdbl.com.bd
24
3.6 Product/Service Scheme:
The bank is always committed to serve the clients with the best values and innovative products and services to enrich its portfolio at the client’s demands and desires.
I) Development Banking
• Industrial loan with emphasis on syndicated arrangement (power &
energy, telecommunication, fiber optic cable, etc)
• Public-Private Partnership (PPP) project (port development,
transport & communication, like road, water & air ways etc)
• Small and Medium Enterprise (SME like IT industries i.e.
development of hardware and software)
• Agro-based venture depending on indigenous raw materials (like jute
twin/yarn industries)
• Green banking (environment & eco-friendly industries like
automatic brick kiln, renewable energy, effluent treatment plant, etc)
• Lease financing.
• Real estate business (including housing loan).
II) Commercial & Foreign Exchange Business
Current deposit Saving deposit. Short term deposit Fixed deposit.
25
Deposit pensions Scheme Other special saving deposit. School banking (new)
a).5 year term BDBL Sanchay Shceme (BDBKSS).
b).10 year term Shikkha Sanchay Shceme (SSS).
c).10 year term Chikisha Sanchay Shceme (CSS).
b. Short term loans
Cash credit (Hypothecation).
Cash credit (Pledge).
Secured advances (General).
Retail banking-
a)customer’s credit.
b) Personal loan.
Trade/Foreign trade financing:
a). Export cash credit.
b). Packing credit.
c). Purchase of local & foreign documentary bill.
d). Payment against documents (PAD).
26
e). Loan against imported merchandise (LIM).
f). loan against trust receipt (LTR).
c. Foreign Exchange
• Local L/C.
• Import L/C.
• Export L/C.
• Back to back L/C.
• Foreign remittance.
• Foreign exchange buy & sale.
3. Capital Market operations
• Share/ Security trading
• Underwriting
• Brokerage house services
• Mutual fund operation
• Banker’s to public issues
3. Other activities of BDBL
Apart from identification and development of viable projects, the bank assists
the interested entrepreneurs in selecting industrial projects having appropriate
27
technology and potential market by providing advisory services and various
information/data.
a. Training
For upgrading the professional competence and skills of its employees, the
bank is continually arranging training programs both at home and abroad.
Every FY they spent a lot of money for training programs and seminars.
b. Observance of National Days
Important national days like National Martyrs and International Mother
Language day on February 21. Independence Day on March 26, Victory day
on December 16 and National Mourn day were observed with due to respect
and solemnity. Floral wreaths were laid at the Shaheed Meenar and at
National Martyrs Memorial to pay homage to the martyrs who made supreme
sacrifice to uphold the dignity of the mother tongue and achieve independence
of the country.
c. Professionalism BDBL committed to provide the best of our attention and ability for discharging
our task, roles and responsibilities and continually upgrading our skill and
knowledge base keeping abreast with ongoing local and global developments for
attaining excellence in banking businesses.
d. Transparency & Accountability BDBL are committed to remain transparent and accountable to our stakeholders in
discharging our responsibilities.
28
e. Customer Focus
BDBL is maintaining strong customer focus and build relationships based on
integrity, trust, commitment, timely solution and mutual benefit to accelerate the
growth.
f. Corporate Social Responsibilities
The banks functions are not only limited to industrial financing , it is also
committed to be known as an institution that builds long term relationship and
delivers awards to its clients for regular payment of loans as well as responsible for
its employees and communities. The bank promotes various socio-cultural
activities, like picnic, sports, etc. for gearing and cheering up its employees,
financial assistance to the bank’s employees, and financial assistance to the severe
ailing employees for proper treatment. Besides, the bank also donates to charitable
institution and government’s relief fund.
3.7 SWOT Analysis of BDBL:
A SWOT analysis gives the stakeholders a perfect picture of a bank’s performance
which is as follows:
Strengths of BDBL:
BDBL is unique in its nature having both specialized and commercial
operation it is regarded as a development bank as well as commercial one.
BDBL has skilled financial management, good credit control and few bad debts.
A strong balance sheet. Access to extensive credit, a strong credit rating, and
a good relationship with the bank and other sources of finance.
29
Skilled employees, successful recruitment, and effective training and development.
Govt. support and Encouragement.
One of the fundamental objectives of BDBL is to boost up small medium industries.
Weaknesses of BDBL:
Decision making process is lengthy.
Lack of promotional activities.
Less diversified product and services line. The salary of BDBL is not high
enough related with other commercial bank operating in Bangladesh.
MAN/Internet/on-line services in BDBL is not upgraded, many of their
works through manually.
Opportunities of BDBL:
There are huge demand of micro-credit, small and medium scale finance.
There are opportunities of innovation in the banking industry.
Bangladesh economy is expanding rapidly, so the need of bank is growing up.
Threats of BDBL:
More and less all the competition in the banking industry are competent , so to survive BASIC Bank no. of defaults loan is 37% which is real threats of bank business.
30
Due to government institution many of the banking decision basic by
political government
Too much interrupted by international assistance institutions like World
Bank, IMF, WTO.
32
4.1 INTRODUCTION
In view of present economic development effort in Bangladesh the SME sector
plays an important role. SME sector employs 25% of the total labor force. As a
result, this sector is the present available sector for creation jobs. SME sector help
alleviate poverty, increase income level of rural people and promote agro-industrial
linkage in Bangladesh. SME sector requires lower energy supply, lower
infrastructure facilities and this sector impose less environment risk. They
contribute towards better utilization of local resources and skills that might
otherwise remain unutilized. Commercial banks are the major sources of financing
in SME sector.
Commercial banks are disbursing significant amount of credit under various
programs like Small Enterprise Development Project, Self-help Credit Program,
and Projects for Small Entrepreneurs, Special Investment Program and Agro-based
Supervisory Industrial Credit etc for the promotion and development of SMEs. The
investment of private sector banks in financing SMEs remains insignificant in
Bangladesh. Our major objective is to identify the contribution of banks in the
development of SME sector. I also try to find out the current status of banks in the
development of SME sector. By preparing the report I gain depth knowledge about
SME banking. Here I also try to make some recommendations to improve the
activities of the bank, especially credit process review.
As bank, Janata, Pubali, BASIC, Jamuna, Bangladesh Development Bank,
Standard Chartered, BRAC Bank provides all traditional banking services
including a wide range of savings and scheme products, SME financing and
ancillary services with the support of modern technology and professional
management. But the main stress is, as the name implies, put on SME financing
33
and these bank has become the pioneer in promoting small, medium & cottage
industries and the largest financiers in this sector. Since inspection, these banks
foresighted the bright prospects of this sector and extended finance to the
deserving and promising entrepreneurs. It provides this sector with financial
support including market information and advice and today the SME sector
constitute a great portion of the total economy.
Banks loan portfolios include commercial loan, industrial loan, consumer loan and
SME loan. All of these loans have significant impact on the Banks profitability. So
treatment is different, require different procedure, documents and so on. Now-a-
days SME financing is getting more important because it is the way of boosting
our economy and also creating employment opportunities.
In 2010 loan disbursement in SME sector was good but after that loan
disbursement in SME sector is decreasing. Bankers are not so much interested on
providing SME loan because of continuous monitoring, much attention and more
investment on less return than industrial loan. There is greater chance of SME loan
to become bad loan than others. From 2010, Bangladesh Bank gives target to
government banks and private banks to disburse loan in SME sector. Since then it
has got momentum. So Bangladesh Bank is playing a key role on SME loan
disbursement. The target of government banks given by Bangladesh Bank to
provide loans in SME sector is normally more than the private sector. In general,
government banks provide more credit facilities in SME sector than private banks
34
4.2 Introduction of SME:
Bank is committed to provide high quality financial services/products to contribute
to the growth of the country through stimulating trade and commerce, accelerating
the pace of industrialization, boosting up export, creating employment opportunity
for youth, poverty alleviation, raising standard of living of limited income group
and overall sustainable socio-economic development of the country.
In achieving the aforesaid objectives of the Bank, Credit Operation of the Bank is
of paramount importance as the greatest share of total revenue of the Bank is
generated from it, maximum risk is centered in it and even the very existence of
bank depends on prudent management of its credit portfolios. The failure of a
commercial bank is associated with the problem in credit portfolio and it’s less
often the result of shrinkage in the value of others assets. As such, credit portfolio
not only feature dominant in the asset structure of the Bank, it is crucially
importance to the success of the Bank also.
Banks loan portfolios include commercial loan, industrial loan, consumer loan and
SME loan. All of these loans have significant impact on the Banks profitability. So
treatment is different, require different procedure, documents and so on. Now-a-
days SME financing is getting more important because it is the way of boosting
our economy and also creating employment opportunities.
Small & Medium Enterprises (SMEs) all over the world have been playing a
crucial role in promoting economic development as well as industrial production.
In particular, SMEs provide the necessary for sustained growth and raising income
on the less developed and transitional economies. SME financing is a topic of
significant research interest to academic and an issue of great importance to the
35
policymakers of Bangladesh and around the world. However, this study attempts to
analyze the SME financing scenarios of the Banking sectors.
4.3Bangladesh Bank Define Small and Medium Enterprise (SME):
Bangladesh Bank has reset the definitions of small and medium enterprises (SME)
as per the National Industrial Policy Order 2010.
The redefinition was done for the benefit of banks and financial institutions, a
Bangladesh circular on Monday said.
4.3.1 MEDIUM INDUSTRY/ENTERPRISE:
In manufacturing, medium industry/enterprise would be those with assets worth
Tk. 100 million (minus land and factory building, and including replacement
value) and/or 100 to workers.
In service industry and in business, medium enterprises will be those which
employ 50 to and have assets (defined as above) worth Tk. 10 to 150 million.
The circular said if a business fits into any of the criterion for a large industry, it
will be considered a large industry though it’s other characteristics may be that of a
medium one.
4.3.2 SMALL INDUSTRY/ENTERPRISE:
In manufacturing, small industry/enterprise would be those with assets worth Tk. 5
to 100 million (defined as above) and/or 25 to 99 workers.
In service industry and in business, small enterprises will be those which employ
10 to 25 have assets (defined as above) worth Tk. 500,000 to 10 million.
36
4.3.3 MICRO INDUSTRY/ENTERPRISE:
In manufacturing, micro industry/enterprise would be those with assets worth Tk.
500,000 million (defined as above) and/or 10 to 24 workers or less.
4.3.4Measures taken by Bangladesh Bank for SME Development:
Bangladesh Bank has already introduced several schemes and programs to flourish
and expand SME Enterprises. Refinance scheme funded by Bangladesh Bank, IDA
and ADB has been facilitated for the development of SME Sector. Besides, to
ensure institutional financial facilities under easy conditions Bangladesh Bank has
taken diverse steps; like opening of ‘Dedicated Desk’ for SME and ‘SME Service
Centre’ in the banks and special facilities for the women entrepreneurs. But reality
is that expected outcome has not been achieved so far in this sector.
In the back drop of recent global recession and changed circumstances, it has
become essential to include all segments of people in the growth process through
facilitating credit to the sectors where less attention has been given due to present
market mechanism, specially, in agriculture and SME sector. Reasonably, a new
department namely ‘SME and Special Programs Department’ has been established
in Bangladesh Bank recently which will be solely responsible for policy
formulation, facilitating fund, monitoring and development of entrepreneurship in
the SME sector.
The guidelines formulated by the newly created department for compliance of the
banks and financial institutions for the development of SME sector are enumerated
below:
37
I. For the first time in Bangladesh, an indicative target for SME loan
disbursement has been set for 2010 by the banks and financial institutions
considering SME development as one of the most important development
agenda of the country. According to the target, SME loan shall be disbursed
to the small, medium and women entrepreneurs.
II. Following the 'Area Approach Method' banks/financial institutions will try
to attain their indicative targets separately by dividing it as branch wise,
region wise & sector wise.
III. Each bank/financial institution shall follow a separate business strategy in
financing SME loan with least formalities in executing documentation to
ensure easy and speedy loan sanction and disbursement process.
IV. Priority shall be given to small entrepreneurs.
V. For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty
thousand) to Tk. 50, 00,000 (Fifty lac).
VI. For more participation of women entrepreneurs in industrial development of
the country and for conducting business activities by women entrepreneurs
in large number, priority shall have to be given to potential women
entrepreneurs in respect of SME credit disbursement.
VII. Banks & Financial Institutions shall put highest priority in receiving loan
application from small and medium women entrepreneurs and settle the loan
38
disbursement process within very reasonable time from the date of
acceptance of the application.
VIII. Each bank and financial institution shall establish a separate ‘Women
Entrepreneurs’ Dedicated Desk’ with necessary and suitable manpower,
provide them training on SME financing and suitably appoint a lady officer
as chief of dedicated desk. Branch wise list of ‘Women Entrepreneurs’
Dedicated Desk ‘should be sent to SME and Special Programs Department
of Bangladesh Bank within two months from the date of declaration of this
policy and program.
IX. Banks and financial institutions may sanction up to Tk. 25,00,000 to women
entrepreneurs against personal guarantee. In that case, group security/social
security may be considered.
X. The success in SME loan disbursement will be considered as yardstick for
further approval of new branches of the concerned bank. License for New
Branches will be issued for financing the priority sectors like SME and
agriculture from 2010 in the name of ‘SME/Agriculture Branch’ instead of
‘SME Service Centre; in order to involve banks in financing priority sector
like SME and Agriculture’.
XI. Each bank/financial institution shall fix the interest rate on SME loan
sector/subsector wise. However, bank/financial institution will inform
Bangladesh Bank sector/sub-sector wise rate of interest immediately and
ensure disbursement of refinanced fund to the clients (women entrepreneurs)
39
at Bank rate +5% interests. Training programs shall be arranged for the
entrepreneurs
4.4 Units of SME Banking Division:
There are 7 business wings in SME Banking Division:
1. General Business Unit
2. Women Entrepreneur cell (WEC)
3. Large Business Unit (LBU)
4. Manufacturing Business Unit (MBU)
5. Suppliers & Distributor Finance Unit (SDF)
6. Commercial Credit Union (CCU)
7. Vehicle Financing Unit
General Business Unit
This largest business unit of SME Banking Division has long been providing loan to SME
entrepreneurs. Regular business wing offers varying products. SME entrepreneurs mostly require
small finance that this business unit has successfully been offering to all level of SME borrowers
irrespective of business type. In addition to small finance this business unit is also offering
finance to medium entrepreneurs.
Women Entrepreneur cell (WEC)
Women Entrepreneur cell (WEC), one of its kinds in the banking industry of Bangladesh, was
launched in 2006 under SME Banking Division with an objective to offer access to formal
finance along with training and technical assistance to the women entrepreneurs across the
country.
Large Business Unit (LBU)
Large Business Cell started its journey from February 2007. The objective for this unit is to
increase the average ticket size of the overall SME portfolio and also to tap the unexplored
market.
40
Manufacturing Business Unit (MBU)
Manufacturing Business Unit was launched in August 2007 under SME Banking Division. The
objective of launching this unit is to better serve the manufacturing sector by providing sector-
focused loan & other services.
Suppliers & Distributor Finance Unit (SDF)
Suppliers & Distributor Finance Unit was launched in September 2007 to engine the growth of
linkage industry, an indispensible sector for any industry.
Commercial Credit Union (CCU)
The Commercial Credit Union (CCU) was launched in October 2007 with the objective of
providing financial services in the Trade Finance services in the Trade Finance sector with pre &
post import facilities.
Vehicle Financing Unit
This newly formed business unit if SME Banking is aimed at financing the commercial vehicles
of SMEs. This unit will operate in some selected areas of the country.
4.5Current Status of SME Financing by Banks in Bangladesh:
SME financing is a high risk service with low profit, discouraging the banking sector to extend
loans to this sector. However, banks cannot ignore an emerging sector like SMEs. That is why;
banks are continuously endeavoring to evolve appropriate models of financing SMEs. Generally,
banks provide both working and other working capital financing to large and medium as well as
small industries. Bangladesh Bank has already introduced several scheme and programs to
flourish and expand SME Enterprises. Refinance scheme funded by Bangladesh Bank, IDA,
ADB has been facilitated for the development of SME sector. Besides, to ensure institutional
financial facilities under easy conditions Bangladesh Bank has taken diverse steps like, opening
of dedicated desk, for SME and SME Service Center in the banks and special facilities for the
women entrepreneurs.
41
In the back drop of recent global recession and changed circumstances, it has become essential to
include all segments of people in the growth process through facilitating credit to the sectors
where less attention has given due to present market mechanism, specially, in agriculture and
SME sector. Reasonably, a new department namely, “SME and Special Program Department”
has been established in Bangladesh Bank recently will be solely responsible for policy
formulation, facilitating food, monitoring and development of entrepreneurship in the SME
sector.
Bangladesh Development Bank Ltd are disbursing significant amount of credit under various
programs like Small Enterprise Development Project, Self-help Credit Program, and Projects for
Small Entrepreneurs, special investment Program and Agro-based Supervisory Industrial Credit
etc for the promotion and development of SMEs. The investment of private sector banks in
financing SMEs remains insignificant in Bangladesh.
Of all the private sector banks like Pubali Bank, Standard Chartered Bank, Agrani Bank, BRAC
Bank, Eastern Bank Ltd( EBL), Prime Bank Ltd, Dhaka Bank Ltd, Mercantile Bank Ltd, Dutch-
Bangla Bank Ltd, Islami Bank Bangladesh Ltd, IFIC Bank Ltd. have the leading role in SME
financing.
Bank of Small Industries and Commerce Bangladesh Ltd. (BASIC) and other government and
private banks are entrusted with the responsibility of providing medium and long-term loans for
promotion and development of small scale industries.
The memorandum and Article of Association of the bank stipulates that 50% of loan able funds
shall be used for financing small scale and cottage industries. The outstanding credit of BASIC
stood at 1505.06 crore at the end of June 2013 for small and cottage industries sector.
4.6 Loan documents needed for SME financing by banks:
Getting SME loan or any kind of Bank loan is, in a word, complicated. In a sense it’s okay to be
complicated because giving money is not a good feeling for anyone but banks. Wherever anyone
go to a bank for loan they just behave like they are not willing to give loan but in hindsight they
actually love to give loan but they love documents more. In Bangladesh it’s more than true that
42
we need a bunch of documents to get loan. To take SME loan from any Bank or financial
institution we need numbers of document that many of SME loan seekers don’t know.
Criteria for loan selection are similar among financial institutions. Without these documents
bank cannot think anyone reliable for any types of loan. So to sanction a loan for any kind of
small, medium or cottage industry these documents are inevitable for any institutions. Most
frequently requested documents by financial institutions as a part of the loan application process
include:
Personal guarantee
Business plan
Appraisal of asset to be financed
Purchase agreement
Cash flow projection
Personal financial statement
Formal application for financing
Business financial statement
TIN certificate
Citizenship certificate
Bank solvency certificate
VAT certificate
Export license
43
4.7 Potential SME Sectors:
Bangladesh has a lot of potential sectors for applying SME. These sectors are nominated below:-
Serial
No.
Name of Sectors Serial
No.
Name of Sectors
01 Agro based and agro processing
industry
26 Diagnostic centre
02 Agro tools making & marketing 27 Call centre
03 Fishing boat building 28 Digital color lab
04 Nakshi kantha and handloom 29 Cable operators
05 Food seed and preservation 30 Generator
06 Bakery 31 Telecommunication
07 Hatchery 32 Old iron goods
08 Dry fish processing 33 Mobile set and accessories
09 IT based activities 34 Electronic business
10 Cyber café 35 Fertilizer tools
11 Forestry and furniture 36 Clothing and shoe business
12 Horticulture, floriculture 37 Road and cement business
13 Cold storage 38 Grocery and chaff goods
14 Construction business 39 LP gas business
15 Hospital and clinic 40 Warehouse & container business
16 Handicrafts 41 Printing and packaging
17 Herbal medicine industry 42 Plastic industry
18 Jute goods & jute mixed goods 43 Cosmetic industry
19 Stationery goods industry 44 Oil and pulse mill
20 Transport communication 45 Mini sugar mill
21 Laboratory 46 Hosiery
22 Jewellery 47 Welding industry
23 Tailoring 48 Partex industry
24 Saloon and beauty parlors 49 Paddy rice business
25 Community centre 50 Boutiques
Table: Potential sectors of SME
45
5.1 SME Department OF BDBL
For enhancing domestic investment to meet rising demand for employment generation, women’s
empowerment and regional development, the role of SME is indispensable. In line with the
Government’s and Bangladesh Bank’s Policy Guidelines, promoting a dynamic SME sector is a
priority for the bank. For enhancing the knowledge and awareness of the officers on SME
financing, a number of training programs were arranged by the bank in the year of 2011 on SME
related issue. Besides that the bank actively participated in different SME fairs and seminars.
The bank took several steps in this regard, some of which were:
Fixation of delegation of power categorically for sanctioning of SME loan by the Zonal,
Branch Head and officers concerned in head office;
Creation of the SME Department to guide, supervise and monitor SME related activities,
sanction and recovery of loans;
For the convenience of selecting SME projects, a list based on area, sectors and cluster was
prepared and sent to all Branches;
Provision of collateral free loan for women up to a certain limit;
Preparation of SME Manual relating to rules, regulation and other related information;
Set up of SME cell, a help desk/ women entrepreneur assistant desk to advise and assist SME
entrepreneur and particularly, women entrepreneur for advisory services including all related
assistant; and
Introduction of four new SME products namely “Ashar Alo” (for women entrepreneur),
“Koler Chaka Takar Jhaka” ( Industries loan), “ Khamar Bari” (loans for the processing of
agricultural products), and “Proshar” (Business Loan).
46
5.2 Function of SME Department OF BDBL:
Some functions of the SME department are described below;
Preparation of strategic plan on overall SME loan and advances of the bank
Sanction of all types SME loan beyond sanctioning power of Branch and Zonal Head.
Maintenance of update records, statements, follow-up, supervision monitoring of SME loans
and inform board of directors/B.B from time to time.
To assist and guide Branch and zonal officials as per guideline of B.B & SME foundation to
mobilize women entrepreneur to across the country through respective women chamber,
chamber of commerce & federation of chamber of commerce.
To collect information & existing set up of BSCIC sponsored artisan village/centre run by
women entrepreneur to across the country.
5.3SME products of BDBL:
Bangladesh Development Bank Ltd (BDBL) has four types of SME products namely “Ashar
Alo” (for women entrepreneur), “Koler Chaka Takar Jhaka” (Industries loan), “Khamar Bari”
(loans for the processing of agricultural products), and “Proshar” (Business Loan).
5.3.1ASHAR ALO (WOMEN ENTREPRENEUR LOAN):
Objectives of Loan:
1. To include women power in the economic development of the country.
2. To encourage women entrepreneur in order to alleviate poverty from the grass-root level.
3. Establishing respect for women power and make them self sufficient.
Characteristics of Loan:
1. Provide different advices to formulate loan proposal.
47
2. Grant and distribute loan at a quick time.
3. Easy terms and conditions as well as flexible interest rate. Present interest rate is 14 %
quarterly.
4. The loan can be repaid within 1 to 5 year in easy installments
5. The grace period is 12 months.
6. Up to a certain level (5 lacs) no collateral is needed, but if the loan amount is more than 5
lacs, collateral is needed. (Usually it is the fixed assets and 1.25 times the loan amount)
7. For small loan, the loan and the capital ratio is 60:40, and for the medium loan, the loan
and the capital ratio is 50:50.
Borrowers Characteristics:
1. At least one year experience in operating business.
2. Must have a legal trade license.
3. Must have a tax identification number.
5.3.2 KHAMAR BARI (AGRI- PRODUCT PROCESSING LOAN):
Objectives of Loan:
1. The development of the country’s agricultural sectors, which is the main driving force of
the country’s economic development.
2. To make direct contribution in reducing poverty from the country by solving
unemployment problem
3. To earn foreign currency by producing export quality products and increase the
production of the country.
Characteristics of Loan:
1. Provide different advices to formulate loan proposal.
2. Grant and distribute loan at a quick time.
3. Easy terms and conditions as well as flexible interest rate. Present interest rate is 15 %.
4. The loan can be repaid within 1 to 5 year in easy installments. (like: monthly/ quarterly/
half yearly)
48
5. The ratio between loan and fixed asset is 1:1.25.
6. For small loan, the loan and the capital ratio are 60:40, and for the medium loan, the loan
and the capital ratio is 50:50.
Borrowers Characteristics:
1. At least one year experience in operating business.
2. Must have a legal trade license.
3. Must have a tax identification number.
4. Must be able to equity investment.
5. The person should be enthusiastic in operating business.
5.3.3 KOLER CHAKA TAKAR JHAKA (INDUSTRY/ SERVICE LOAN):
Objectives of Loan:
1. To encourage the middle class in operating business and make positive contribution in
the economic development of the country.
2. To make direct contribution in reducing poverty from the country.
3. To earn foreign currency by using local technology and raw material.
4. To earn foreign currency by producing export quality products.
Characteristics of Loan:
1. Provide different advices to formulate loan proposal.
2. Grant and distribute loan at a quick time.
3. Easy terms and conditions as well as flexible interest rate. Present interest rate is 15 %.
4. The loan can be repaid within 1 to 5 year in easy installments. (like: monthly/ quarterly/
half yearly)
5. The ratio between loan and fixed asset is 1:1.25.
6. For small loan, the loan and the capital ratio are 60:40, and for the medium loan, the loan
and the capital ratio is 50:50.
49
Borrowers Characteristics:
1. At least one year experience in operating business.
2. Must have a legal trade license.
3. Must have a tax identification number.
4. Must be able to equity investment.
5. The person should be enthusiastic in operating business.
5.3.4 PROSAR (BUSINESS LOAN):
Objectives of Loan:
1. To create a loan opportunity for the business man who are interested in medium and
small enterprise.
2. To make direct contribution in reducing poverty from the country by solving
unemployment problem
3. To improve the standard of living of the people of our country.
Characteristics of Loan:
1. Provide different advices to formulate loan proposal.
2. Grant and distribute loan at a quick time.
3. Easy terms and conditions as well as flexible interest rate. Present interest rate is 14%.
4. The loan can be repaid within 1 to 5 year in easy installments. (like: monthly/ quarterly/
half yearly)
5. The ratio between loan and fixed asset is 1:1.25.
6. For small loan, the loan and the capital ratio are 60:40, and for the medium loan, the loan
and the capital ratio is 50:50.
Borrowers Characteristics:
1. At least one year experience in operating business.
2. Must have a legal trade license.
50
3. Must have a tax identification number.
4. The person should be enthusiastic in operating business.
Amount of SME loan range from 50 thousand to 50 laces which are approved by credit
committee consists of 4 GM as consultant officer. For SME loan investor need to provide
application form along with TIN number and trading certificate.
51
5.4 Targets for SME Credit
A total target of SME credit worth Tk. 23,995(Twenty three thousand nine hundred
ninety five) crore has been set by the banks and financial institutions for the first
time in 2010 considering SME development as one of the important development
agenda of the country. According to the target, SME loan shall be disbursed to the
small, medium and women entrepreneurs. In future, banks/financial institutions
will send their target to the SME and Special Programmes Department as well as
branch offices of Bangladesh Bank fixing their target of SME loan sector wise,
region wise and branch wise.
5.5 SME Loan Operation Policy of BDBL
Government policy, direction of SME Foundation and Bangladesh Bank is used as
the guideline of SME policy of BDBL.
5.5.1Objectives of SME Loan
To elevate poverty from the country through creating employment
opportunity and lessening the income discrimination.
To develop potential entrepreneur in small and medium industry.
To support women entrepreneur financially in industrial and
business sector.
To explore intellectual property in the place of venture capital.
To prompt the economic cycle of the country.
52
5.5.2 SME Loan Approval Process by BDBL
Following activities are operated by SME Loan Operation Department to approve
the loan:
Application received in primary form for consideration of issuing final form
against fee.
Formal application received in banks printed form namely LAF (Loan
Application form) with evaluation fee and vat.
Examination LAF.
Seeking of missing information required for appraisal.
Project land inspection suitability, title, lawyer’s opinion, infrastructure
facilities etc.
Preparation for appraisal report
Preparation of memo for credit committee.
Recommendation of credit committee.
Preparation of memo for competent authority.
Issuing of sanction latter.
BDBL provide loan for an investment to create, expand and/or develops certain
facilities in order to increase the productions of goods and/or services in a
community during a certain period of time. BDBL's main function is to extend
financial assistance to industrial project. It basically needs to be satisfied about the
overall viability of a project to be financed. For this purpose, an objective
assessment of the viability of the project is required to be examined by BDBL from
various points of view.
53
Approval Process
Issuing Primary Form
Receiving Primary Form duly filled in
Issuing LAF
Receiving LAF duly filled in and fully documented
Scrutiny of LAF at Branch/Zone/LOD
Processing at Branch/Zone/LOD
Appraisal Steps
Management
Appraisal
Appraisal Report
Placing to Credit Committee for Recommendation
Placing for sanction to Delegate Authority
Management
Appraisal
Management
Appraisal
Management
Appraisal
Managemnt
Appraisal
Documentation
(Branch/Law Dept.)
Implementation
(Branch/PID)
Recovery of Loan
(Branch)
54
5.5.3 Credit Limit:
Types of Enterprise Project Loan/Term Loan
Cash Credit/Current Capital
Small Enterprise (service and business)
Tk 50000 to 25 Lakh Tk 50000 to 25 Lakh
Small Enterprise (Industry/Production)
Upward of Tk 50000 to not more than 50 lakh
Upward of Tk 50000 to not more than 50 lakh
Medium Enterprise (service and business)
Upward of tk 25 lakh but not more than 50 crore
Upward of tk 25 lakh but not more than 50 crore
Medium Enterprise (industry/production)
Tk 50 lakh and so on Upward of tk 25 lakh but not more than 50 crore
5.5.4 Interest Rate:
I. Project/Term Loan: 15% (monthly/quarterly basis.).
II. Cash Credit/ Current Capital: 15% (quarterly basis).
III. Women Entrepreneur: 14% (quarterly basis).
55
5.6 Loan Recovery in SME Sectors:
BDBL provides different types of SME loan to the investors, which they can invest mainly in trading
sectors, manufacturing sector and service sector.
5.6.1Trading Sector:
The Trading sector is a good sector for banks especially for BDBL as this is one of the largest industrial
sectors of Bangladesh as earning foreign exchange and holds a good position in the world market. Loan
recovery of BDBL in this sector is quite satisfactory. The bank faced loan default of 107 million taka in
2013-2014 financial years. So there is a hefty amount of loan defaulted in trading sectors.
Table 1: Trading Sectors’ Loan Recovery (Million TK)
LOAN 2010-11 2011-12 2012-13 2012-13 2013-14
Loan Sanctioned
227 312 397 443 628
Loan Recovered
163 237 284 378 521
Loan Defaulted
64 75 113 65 107
5.6.2 Manufacturing Sectors:
Manufacturing sector is an important sector for country’s growth. But this sector faces loan default
because of inexperienced and inefficient manpower of our country. This can be said in the way that the
electric machines installed in our country with the help of foreign engineer but after installation though
they gave instruction but our inexperienced workers are not able not maintain properly. The condition of
loan recovery is not good in recent years although the bank has sanctioned a satisfactory amount of
manufacturing loan in the SME sector. The bank faced loan default of 109 million taka in 2013-2014
financial years. So there is a hefty amount of loan defaulted in manufacturing sectors.
Table 2: Manufacturing Sectors’ Loan Recovery
56
(Million TK)
LOAN 2010-11 2011-12 2012-13 2012-13 2013-14
Loan Sanctioned
157 234 297 338 397
Loan Recovered
93 163 169 265 288
Loan Defaulted
64 71 128 73 109
5.6.3 Service Sectors:
Service sector in our country is much profitable though there are some defaults. For expanding this
industry, BDBL gave loan such as tourism center, hotel, restaurant and service oriented activities.
BDBL’s loan recovery condition in this sector is moderately good. The bank faced loan default of 94
million taka in 2013-2014 financial years. So there is a hefty amount of loan defaulted in service sectors.
Table 3: Service Sectors’ Loan Recovery
(Million TK)
2010-11 2011-12 2012-13 2012-13 2013-14
Loan Sanctioned
202 243 293 323 387
Loan Recovered
109 165 171 265 293
Loan Defaulted
93 78 122 58 94
The health of a bank is determined by its Non-performing loan (NPL). There we can see from 2010-2014
a hefty amount of loan is defaulted by the borrowers of BDBL. So the health of BDBL is not in a very
good condition
58
6.1 Questions Raised & Addressed
There are some open ended questions which are being answered by the bankers. This study is based on both primary and secondary data. Primary data were collected through personal interview with a structured questionnaire and direct observations.
6.1 .1 Can institutional finance for SME be broaden both in terms of number of SME accessing such loans and diversifying (increasing) the varied sources of funds for SME?
Lack of investing or operating funds remains as one of the most prominent challenge for almost
all the SMEs in Bangladesh. Ahmed (2014) points out that due to the lack of national quality
policy and adequate support system, and also the lack of credibility of the quality certification
authority, SMEs of Bangladesh have failed to ensure the quality of products and services both in
domestic and international markets. He also argues that access to finance prevails as one of the
most important problems for the SMEs in Bangladesh.
Rahman and Mahmood (2007) mentions that Small and Medium Enterprises are the backbone of
the economy in countries like Bangladesh. SMEs suffer from common constraints such as lack of
capital, difficulties in procuring raw materials, lack of access to relevant business information,
low technological capabilities, problems caused by cumbersome and costly bureaucratic
procedures, and policies and regulations that generate market distortions. However, with proper
domestic policy support from the government, and an eye towards global market trends, SMEs
can build capacity and reap the rewards of globalization.
6.1 .2 Are there provisions for female entrepreneurs and young entrepreneurs to have access to specialized funds for SME development? In addressing the above notion it can be said that Bangladesh Development Bank Ltd (BDBL) itself
has greater focus on female run SMEs, along with other commercial banks in general. However,
there has not been any serious undertaking in terms of young entrepreneurs in particular.
General Obstacles Faced by SMEs: which are prohibiting financing institutions from taking greater
interests in SMEs and that are not persuading entrepreneurs to undertake SMEs as livelihood
mechanisms:
59
The main driving force in SME promotion in Bangladesh is in the growth of agro-based processing
and essential consumer goods products. Many institutions at the national level are providing
assistance to entrepreneurs through SMEs in the country. Industrial credit in Bangladesh is financed
through government sponsored industrial banks; commercial banks and specialized financial
institution.
6.1.3 Are there accessible and affordable training facilities for SME, female entrepreneurs and young entrepreneurs?
There is limited access to training facilities and wherever available they are not necessarily
affordable. At the moment, commercial banks are not entertaining any training facility for SME
though occasionally ILO-UN and /or ADB funded training programs are made available for
those SME who are equipped with internet facility. It is indeed discriminatory for those of whom
mostly reside in the district/villages level. Female SME owners are given a priority though not in
an adequate manner and as for young entrepreneurs, it barely exists.
6.1.4 Are there adequate infrastructure facilities (i.e. gas, electricity and roads etc.) for SME growth?
Bangladesh is currently lacking adequate infrastructure facilities, i.e. gas, electricity, roads,
warehouse facilities, cold storage etc., which are hampering SME growth and access to market
facility. Utilization costs for such infrastructure are so high that they often not encouraging to
SME development.
6.1.5 Are there sufficient skilled technicians and workers to support SME growth and to compensate for the poor management skills of the entrepreneurs particularly female and young entrepreneurs?
There are tremendous shortage of skilled workers to support SME growth and needless to
mention that poor management skills are a hindrance. In a country like Bangladesh particular
focus must be given to female and young entrepreneurs considering that more than 50% of the
population consists of female and over 68% of the population is under the age of 30 years of age.
6.1.6 Can the usage of modern technology be of any significance in making SME more competitive both nationally and internationally?
60
At a time when most design and development of SME products are mostly manual and/or highly
labor intensive, usage of modern technology could be of high value adding. Such an introduction
of modern technology would greatly enhance national and international competitiveness of BD
SMEs.
6.1.7 Are there sufficient policy framework for supporting SME growth; are they comprehensive and sustainable?
Generally speaking, various Ministries of BD Govt. and Bangladesh Bank in particular has
guidelines in this regard. However, they are not well established in terms of implementation
mechanisms and nor are they enforceable in any manner. SME policy frameworks are by no
means comprehensive and hence, not sustainable.
6.1.8 Is the inability to market SME product, maintain quality assurance and sustain product quality in a consistent manner of any concern in the current SME growth context?
When competitiveness, both in the country from larger enterprises and from within, is in high
gear, consistent product with assured quality is paramount. Sustainability of SMEs depends on it
in high degree. It is only then SME growth can be perceived as viable.
62
7.1 Findings & Analysis
Form my practical analysis I have found the real scenario of BBL surrounding with credit are as follows-
1. Aggregate Loans and advances are 79% of total Deposit.
2. Approximately 77% of the loans and advances have been given to small and cottage
industries.
3. In the credit policy it has been specified that, approximately 50% of the loans and
advances will be given to small-scale industries. By examining the figures we have found
that, for the month ended June 2012, BDBL employed 77% of its loan able funds to
small-scale industries. Head Office of the bank is monitoring all kind of loans and
advances.
4. Branch managers are fully liable for the selection of the borrower.
5. Continuous monitoring of the working capital facilities are ensuring by the inspection of
the stocks.
6. Conservation approach is taken to avoid any kind of foreign exchange exposure.
7. Documentation process.
8. No credit is extended to customer client Entity, which exceeds in total commitment more
than 10% of the Banks capital and fees reserves.
9. House building loan facility and other commercial loan facility has been demoralized by
the branch authority.
10. Persuasion and monitoring are moderately maintain for ensuring the prompt payment.
11. Head office decision sometimes creating classified loans.
12. Credit evolutions techniques are not enough to judge the credibility of the borrower
63
7.2 Causes of Problem Loans in BDBL
However, the study of files and documents of top defaulters of BASIC reveals the following causes of
problem loans.
Poor Loan Interview.
Inadequate Financial Analysis
Improper Loan Structuring
Improper Loan Support
Inadequate Monitoring
65
8.1 Recommendations
Although the Bank is sound, it requires some changing criteria from my practical
experience. Here some recommendations are made to enrich the credit operation
system of the bank:
1. Loan appraisal technique should be modernized.
2. Documentation process should be improved.
3. Customer Service should be enhance
4. Marketing for selling the services should be encouraged.
5. Adequate training is required for credit officer.
6. Adequate measure should be taken for small industrial loan.
7. Management should be careful about high liquidity ratio.
8. Some discretionary power should be given to the branch management.
66
8.2 Conclusion
In this report I tried to find out the performance of BDBL on its SME credit operation
and I have found that, the performance of BDBL is in satisfactory level. The credit
management of BDBL is relatively sound compared to all other banks operating in the
country. BDBL has already developed goodwill among its clientele by offering its
excellent services. This success has resulted from the dedication, commitment and
dynamic leadership among its management over the periods. The Bank has a very low
rate of classified loans, which is around 4.93% only. BDBL has been following a series
of measures, both in Head office and branch levels, to follow up and supervision of loans
and advances to avoid and minimize non performing loan of the bank. BDBL therefore
emphasizes on persuasions rather than going for legal action in order to recover its
classified loans. Bank considers the practical aspects of the project being sick and extends
further finance or reschedules the repayment period. Into eliminate those problems to
increase in do are encouraging in the sense that it shows efficient management can lead to
successful banking business in Bangladesh. This could be source of useful lessons to the
total banking sector. BDBL being the best among the government owned banks and
should go hand in hand with modern banking system and culture to retain and improve
the present position in the financial arena. But to retain the performance of BDBL it
should make changes in some of the cases. Such as : in disbursing loans and advances
the bank gives more emphasize on Dhaka division, textile sector etc. but it is not enough
for future success. Though the classification rate of BDBL is well below of the
acceptable rate but its credit technique to judge the client are not satisfactory, so changes
are necessary to eliminate those problems to increase the efficiency and betterment of the
bank.
Whatever, during the short span of time of its SME loan operation, the bank has been
successful to the position itself as a progressive and dynamic financial institution in the
country.
67
References:
1. BDBL Annual Report-2014
2. SME Manual-2013 of BDBL
3. Official Web Site of BDBL (www.bdbl.com.bd)
4. Bangladesh Bank SME Credit Policies and Programmes
Published by
Dr. Md. Golam Mustafa, General Manager
Department of Printing and Publications
Bangladesh Bank, Head Office, Dhaka.
Website: www.bangladeshbank.org.bd
5. Official Web Site of SME Foundation